When government imposes tax in the case of negative production externality, what will be effect on Consumer Surplus? (A) Consumer surplus reduces (B) Consumer surplus increases (C) Consumer surplus does not change (D) None of above

JNU SSS 2020 Question 16: Market failure, externalities and public goods

When government imposes tax in the case of negative production externality, what will be effect on Consumer Surplus ?

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Market failure, externalities and public goods has come up 114 times in 7 exams since 2006.

This question is on Pigouvian taxes and corrective policy, part of Market failure, externalities and public goods in Microeconomics.

Using taxes or subsidies to make people face the social cost of their actions.

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